Hi guys, I assume you already know me well enough to know I don’t criticize posts for the fun of it, only so that ONE OF US will learn something. Go ahead and show me why Im wrong, if you think so. Im big enough to admit when Im wrong, if that turns out to be the case.
Datasponge: “-In a market going sideways on decreasing volatility (such as the current market), you can make a packet writing out of the money calls and puts.” Although this is a correct statement, it’s a very hard job to FORECAST when future volatility will remain low. “-A week of so ago you could get $1.50 writing RIO $28 Sept Puts that were never in the money and highly unlikely to go into the money. (You can sell them Today for 40c).” The price for selling a put is directly related to the risk level that rio will fall below the strike. My question to you is ‘was $1.50 premium overpriced or underpriced?’ How did you arrive at the conclusion that rio was ‘unlikely’ to fall below $28? How unlikely? Your plays on the banks are sound enough, if your view is correct. However, the view is where its ALL at. If you are right, you get paid, and if you are not, well, you know….Weigh up how often you get the view right, and what you get paid, and its all about even. Read Geffas post/link.You are picking a direction first, then trading your view, just like I said.
Carpediem: “-The only time you are really risking the original capital is when the price drop significalty on the underlying share.” Wrong, you are always risking your capital. Options is about ‘how much risk’, and ‘is the risk worth the reward?’ What about when your call gets exercised because the stock rose more than your premium received? I call that a loss to. It’s a loss of potential profits, but SDs example is even more important. See SD’ds reply on losing capital. He says it all. Try running a spreadsheet on stocks and options with a covered call writer compared to a naked call writer. There are times to be covered and times to be naked. Its all about telling us what the next month is better for, covered or naked? Not telling us what last month was better for. Still I like your attitude, and good luck to you. Ive been there done that on the qqq, and it’s a good stock if you get it right. Liquidity is deep.
Kman “-If you sell options time is working with you. Even if you choose the wrong direction time will eat away at the option price as long as it doesn't go ITM. Selling options is the only way to make money. Its like being the casino not the patron.” Sorry, time is not necessarily in favour of the seller. Selling is not the only way to make money, however selling is good half of the time. Casino games are excellent examples of probabilities. Think of it like a game of Baccarat. All you do in Baccarat is bet on the house or the player. If you get it right , you get paid. There are times when the house goes on a sustained winning streak, and times when the player does the same. At any point that you join the game, you have to decide ‘will the house be winning the next few hands, or will the player win?’. Craps is also a game where you can be the house, but it doesn’t help increase your odds of predicting the future. Sure, 80-% of etos expire worthless, but winners are paid an avge of 5:1, so its still a fairly evenly balanced proposition. Being a market maker, and governing the spreads is the only thing like being the house. “-I don't think andrew really understands options.” OK, you got me, Im exposed as a fake. LOL. I have a good sense of humor, I hope you do too.
Geffa, Ive always liked your posts. Im also a huge fan of Niederhoffer, even if he did blow up. His theoretical work is priceless, and his book is like a bible to me. Unfortunately, he didn’t follow his own theory. I agree with all of your article. Buying or selling is just a side of a coin, and you need to know who will win tomorrow, the buyer or seller? Good post.
